Sie sind auf Seite 1von 19

Accounting, OrganizationsandSocie@, Vol. 16, NO. 4, pp. 313-331, 1991. 0361-3682/91 53.00+.

00
Printed in Great Britain Pergamon Press plc

THE FASB’S CONCEPTUAL FRAMEWORK, FINANCIAL ACCOUNTING AND


THE MAINTENANCE OF THE SOCIAL WORLD

RUTH D. HINES*
Macquurie University, Sydney

AhtraCt

This paper addresses the functional failure of the FASB’s Conceptual Framework. It suggests that the reason
for the problems encountered by the FASB in its CF project (and those encountered in other CF projects),
is that the FASB CF is elaborated around a highly problematic conception of the relationship between
financial accounting and economic reality. The CF involves a process of mundane reasoning around a
central incorrigible proposition of our society, that social reality exists objectively and intersubjectively.
This paper draws on anthropology to show that this assumption of a concrete, objective social reality is a
product of everyday reasoning such as that of the FASB members. A comparison of the FASB’s reasoning
about economic reality, with the reasoning of the African Azande about their poison oracle reality, shows
how those two realities are both socially maintained by the same process of commonsense reasoning. A
number of important implications follow which extend beyond CFs and financial accounting practices.
These implications relate to the essentiai culture and value-dependency of logic, reasoning and rationality,
and have attendant inferences for the potential role of accounting researchers in influencing societyrather
thanmerely participating in the legitimizing and reproduction of the status quo.

A picture held us captive. And we could not get out- viding a basis for guiding standard-setting and re-
side it, for it lay in our language and language seemed to solving accounting controversies.’ Authors such
repeat it to us inexorably (Wittgenstein, 1953).
as Dopuch & Sunder (1980) have questioned
why, given the lack of impact that CF’s have had
A number of Conceptual Framework (CF) pro- on the determination of accounting standards,
jects have been undertaken in the UK, U.S.A., “members of the profession and corporate man-
Canada and Australia. A recent and major CF is agers continue to contribute time and money to
that of the Financial Accounting Standards Board the process of developing a conceptual frame-
(FASB). In terms of the resources devoted to it, work? ” (p. 19). This question is still relevant in
and the length of time over which this project the light of recent work proceeding on CFs in
extended, the FASB’s CF is perhaps the major CF Canada and Australia.
project so far undertaken. This paper represents an attempt to shed
However, writers adopting a functionalist per- some light on this question. It starts from the
spective have criticized the CF for not fulfilling premise that the meaning and significance of CF
its functional objectives, principally that of pro- projects is not so much functional and technical,
‘The author gratefully acknowledges the very helpful comments and suggestions on previous versions of this paper by two
anonymous reviewers, Jere Francis, James Guthrie, Graham Partington, Ken PeasnelI, Peter Robinson, Ian Stewart, Gary
Sundem, Greg Whittred and, in particular, Hugh WiUmott for drawing her attention to the work of PoIIner (1974, 1989).
Also, participants in seminars at Macquarie University and the Copenhagen Business School, the 1987 Conference of the
Accounting Association of Australia and New Zealand, and the 1989 Conference of the American Accounting Association.

’ See AgrawaI, 1987; AgrawaI et al., 1987; Dopuch & Sunder, 1980; Gerboth, 1987; Hines, 198% Joyce et al, 1982; Miller &
Redding, 1986; Peasnell, 1982; Rogers & Menon, 1985; Solomons, 1986.

313
314 RUTH D. HINES

but rather social and cultural. Financial account- SFAC No. 5 (FASB, 1984) which deals with the
ing practices are implicated in the construction crucial issues of recognition and measurement
and reproduction of the social world’ and it - what to put in financial statements, when to
would seem to follow, as suggested by several put them there, and what amounts to associate
authors3 that CF projects similarly play a part in with them.
the process of the social construction of reality. The board was divided especially with respect
The CF includes five discussion memoranda, a to the question of whether statement No. 5
tentative conclusions document, seven expo- should endorse the status quo, that is, the his-
sure drafts, a series of eight research studies, and toric cost system, or whether it should forge
a number of public hearings involving preparers change, that is, endorse current market valua-
and users of financial statements (Miller & Red- tions. Due to the impasse of dissenting opinion
ding, 1986, p. 97). Thus it is an important dis- on the board and the lobbying of interest groups,
course about the practice of financial account- the statement that was eventually produced
ing, analysis ofwhich can lead to insights into the merely described five different valuations that
constitutive nature of both accounting practices are presently used in practice and non-commit-
and reasoning processes. tally stated (para. 70) that “this concepts state-
ment suggests that use of different attributes will
continue”.
Additionally, as Solomons (1986, p. 124)
MAJOR PROBLEMS ATTENDING THE FASB’S
points out, SFAC No. 5 fails to deal with difficult
CONCEPTUAL FRAMEWORK but crucial issues such as an analysis of the earn-
ings concept, the recognition of executory con-
Whilst it would be an overstatement to say tracts, the treatment of long-term contracts, in-
that the FASB’s Conceptual Framework is a com- ventory valuation, and depreciation. Statement
plete failure, certainly the CF project has been No. 5 also contains a variety of contradictions
and is still, from a functional point of view, highly (see Miller, 1985, p. 5 1). Furthermore, the CF
problematic. DifBculties surrounded the formu- has the deficiencies of incompleteness, internal
lation of the CF, and now that the project is appa- inconsistency, ambiguity, circular reasoning,
rently complete, or is at least for the time being and unsubstantiated assertions (Agrawal, 1987;
at a standstill,* difliculties surround its opera- Gerboth, 1987; Hines, 1989a; Miller & Redding,
tionalization. 1986).
Similarly to many previous attempts to formu- The CF was intended to constitute a body of
late a CF, formulation of the FASB’s CF was coherent principles which would guide board
marked by dissension amongst the board mem- members m setting standards, and provide guid-
bers. This dissension reached a climax with ance to practitioners in resolving problems that

‘See, for example, Ansari & Euske, 1987; Boland, 1989; Boland & Pondy, 1983; Burchell el al., 1980, 1985; But-W 1987;
Chua, 1986; Hines, 1988a, 1989b; Hopper et al., 1987; Hopwood, 1985, 1987, 1990% Hopwood 8~bfi, 1989;Knights &
Collinson, 1987; Laughlin, 1987; Lehman & Tinker, 1987; Loft, 1986; Miller, 1986; Miller & O’Leary, 1987; Morgan, 1988;
Neimark & Tinker, 1986; Richardson, 1987; Roberts, 1990; Sikka et al., 1989; Tinker, 1988; Tinker et al., 1982; Witlmott,
1986. This list is by no means comprehensive.

3 See Booth & Cocks, 1989; Hines, 1989a; Hopwood, 1988, 1990b. PeasneR (1982) ihminateS the Strategic UatUre of

ConceptualFramework projects.
4Johnson ( 1985) suggests that whilst the Board did not formally foreclose the possibility of returning to the project at some
future date, this does not appear likely since despite enormous effort, an impasse was reached at Statement of Financial
Accounting Concepts No. 5, regarding recognition and valuation, and was never surmounted. He concludes that if the
project is ever taken up again, it will not be until after the end of the last term of the last Board member who Wasinvolved
with the project, which would probably mean about 1996.
THE FASB’S CONCEPTUAL FRAMEWORK 315

are not addressed by authoritative pronounce- THE CONCEPTION OF THE RELATIONSHIP


ments (Section III (H)( 2) of the board’s rules of BETWEEN REALITY AND FINANCIAL
procedure). Thus the CF was intended as a fun- ACCOUNTING WHICH UNDERLIES THE
damentally prescriptive framework. However, FASB’s CONCEPTUAL FRAMEWORK
even from the start in SFAC No. 1, the board
moved back and forth between prescriptive and As stated in the previous section, the CF of the
descriptive approaches (see Miller & Redding, FASB was intended to provide a theoretical foun-
1986, pp. 104-105). By the time SFAC No. 5 was dation which would guide board members in
issued, the board’s approach had become almost setting standards and help practitioners resolve
totally descriptive. Indeed statement No. 5 accounting problems which were not standar-
shows that the aims and philosophy of the CF dized (Section III (H )( 2) of the board’s rules of
had been lost by the time it was issued. SFAC No. procedure). In elaborating the CF it was first
5 states in several places (paras 3 5,5 1, 108) that necessary for the Board to determine what were
concepts are to be developed as the standard- the objectives of financial reporting. The CF
setting process evolves. Such an evolutionary states that the principle objective of financial ac-
philosophy, which sees concepts as being the re- counting is to provide useful information for de-
sidual of the standard-setting process, is in direct cision-making (FASB, 1978, 1980); useful infor-
contradiction to the stated purpose of the CF. As mation is relevant and reliable (FASB, 1980); re-
Solomons (1986, p. 122) states: “if all that is liability embraces representational faithfulness,
needed to improve our accounting model is verifiability and neutrality (FASB, 1980).
evolution and the natural selection that results The FASB’s ( 1980) discussion of reliability ar-
from the development of standards, why was an ticulates the view held by the FASB of the rela-
expensive and protracted conceptual tiame- tionship between financial accounting and econ-
work project necessary in the first place?” omic reality:
A major deficiency of the CF is that it is at most
only partially operational. For example, Dopuch The reliability of a measure rests on the faithfulness with
& Sunder ( 1980) applied the criteria and defini- which it represents what it purports to represent ..
tions contained in the FASB’s statement on ob- Representational faithfulness . . refers to the correspon-
jectives (FASB, 1978) to three major controver- dence or agreement between accounting numbers and
the resources or events those numbers purport to repre-
sial accounting issues. They concluded that, like
sent (p. 3).
the many previous attempts by standard-setters The financial statements of a business enterprise can
and study groups to elaborate and use a set of in- be thought of as a representation of the resources and ob-
formation criteria, application of the FASB’s de- ligations of an enterprise and the financial flows into, out
finitions and statement of objectives did not re- of, and within the enterprise - as a model of the enter-
prise . . . Just as a distorting mirror repeCt.r a warped
solve accounting issues. Similarly Rogers &
image of the person standing in Rant of it or just as an in-
Menon ( 1985) found SFAC No. 3 on elements of expensive loudspeaker fails to reproducefaitbft4fly the
financial statements and SFAC No. 5 to be non- sounds that went into the microphone or onto the
operational. phonograph records, so a bad model gives a distorted
Joyce et al. (1982) carried out a study of the representation of the system that it models. The question
that accountants must face continually is how much dis-
effectiveness of SFAC No. 2, using individuals
tortion is acceptable (para. 76) [emphasis added].
who had served on the FASB, or its predecessor,
the Accounting Principles Board (APB). They
found that nine of the eleven qualitative charac- From this it appears that the ontological assump-
teristics listed in the Statement were non-opera- tion underpinning the CF is that the relationship
tional. As Joyce et al. ( 1982, p. 67 1) pointed out, between financial accounting and economic re-
ality is a unidirectional, reflecting or faithfully
FASB background documents, and indeed SFAC
reproducing relationship: economic reality
No. 2 itself, showed the board to be aware of, but
exists objectively, intersubjectively, concretely
apparently unable to overcome, this problem. and independe.ntly of financial accounting prac-
316 RUTH D. HINES

tices; financial accounting reflects, mirrors, rep- and “false” accounting numbers: “the moral is
resents, or meusures this pre-existent reality. that in seeking comparability accountants must
This conception of the relationship between not disguise real differences nor create false dif-
financial accounting and reality recurs through- ferences” ( 1980, para. 119). The concrete “real
out the CF and forms the basis for most of the CF. world” or “real thing” pre-exists accounting
For example “[Accounting] information often practices which measure it. The “real thing” is
results from approximate, rather than exact, uninfluenced by such practices, which simply
measures” ( 1978, p. 1); and “reported earnings provide words and numbers which “stand for” it:
measures an enterprise’s performance during a “symbols (words and numbers) in financial state-
period” ( 1978, para. 45). The numbers mirror ments stand for cash in a bank, buildings, wages
the concrete structure of social reality and can due, sales, use of labour, earthquake damage to a
be arithmetically manipulated: “financial state- property, and a host of other things and events
ments involve adding, subtracting, multiplying pertaining to an entity existing and operating in
and dividing numbers depicting economic what is sometimes called the ‘real world”’
things and events” ( 1978, para. 18). Accounting (1980a, para. 6); “real things and events that af-
numbers should be exact and precise measures, fect a dynamic and complex business enterprise
not involving any bias or error from the number are represented in the financial statments by
which exactly represents reality: “the role of words and numbers, which are necessarily
financial reporting requires it to provide highly simplified symbols of the real thing”
evenhanded, neutral, or unbiased information” ( 1984, para. 2 1).
(1978, para. 33); “bias in measurement is the Throughout the CF, analogies are drawn be-
tendency of a measure to fall more often on one tween business enterprises and various physical
side than the other of what is represented in- phenomena, in an attempt to elucidate the rela-
stead of being equally likely to fall on either side. tionship between fmancial reports and enter-
Bias in accounting measures means a tendency prises. For example, similarly to the previously
to be consistently too high or too low” ( 1980, p. quoted mirror analogy, the Board (FASB, 1980,
8); “freedom from bias, both in the measurer and para. 24) likens financial accounting information
the measurement method, implies that nothing to a map:
material is left out of the information that may be
necessary to insure that it validly represents the An analogy with cartography has been used to convey
some of the characteristics of financial reporting, and it
underlying events and conditions” ( 1980, para.
may be useful here. A map represen#s the geographical
79); “representational faithfulness of reported features of the mapped area by using symbols bearing no
measurements lies in the closeness of their cor- resemblance to the actual countryside, yet they com-
respondence with the economic transactions, municate a great deal of information about it. The cap-
events and circumstances that they represent” tions and numbers in financial statements present a “pic-
ture” of a business enterprise [emphasis added].
(1980, para. 86). There is no subjectivity in ac-
counting measures. They are not evaluations.
Statement No. 2 (1980, pat-a. 53) draws an
Subjectivity begins not in the mind of the ac-
analogy between the way users base predictions
counting report preparer or measurer but only
on financial accounting information and the way
in the minds of accounting information users:
in which meteorologists base weather predic-
“accrual accounting provides measures of earn- tions on “information about actual conditions -
ings rather than evaluations of management’s
temperatures, barometric pressures, wind vel-
performance . . . Investors, creditors, and other
ocities at various altitudes and so on.”
users of the information do their own evalua-
tions” (1978, para. 48). This conception that
economic reality has a concrete corporeality AN ALTERNATIVE VIEW
which can be objectively measured leads to a
dichotomv 1 between “real” accountine o--numbers The idea of the possible access via knowledge,
THE FASB’S CONCEPTUAL FRAMEWORK 317

to objects and events that are independent of Foucault, 1967,1973,1977,1981; Rorty, 1980).
any practices of thought and action through A number of accounting researchers also (see,
which knowledge of them is achieved, corres- for example, the authors cited in footnote 2)
ponds to the philosophy of “reaIism”.5 Realism conceive of accounting practice and accounting
underlies the “everyday”, “mundane” or “com- research as a constitutor, influencer, reifier and
monsense” attitude, that is, the attitude of legitimiser of social reality rather than as a mir-
people in their everyday lives. The common- ror or description of “what is”.
sense attitude depends, inter ali& on the taken- Nevertheless, despite setting aside the as-
for-granted assumption that perceptions give sumption of an objective, shared and intersub-
direct access to objects and events: objects and jectively accessible world within academic dis-
events are considered to be perceived “as they course, this assumption remains at the core of
are” (Schutz, 1962, 1964). most adults’ reasoning:
The commonsense assumption of realism
used to form part of the conceptual foundations And yet, the forcefulness of these alternate possibilities
notwithstanding, the primordial suppositions which in-
of both the physical and social sciences. It used
fuse our conception of our relations to the world and
to be taken-for-granted in these disciplines that which posit a commonly or inter-subjectively shared
research methods provided direct access to the order of events continues to be employed by most per-
phenomena studied, and that empirically suc- sons and even by the philosophers themselves in the time
cessful theories corresponded to,’ mirrored or they live away from the occupational attitude which
allows them to make their otherwise outrageous pro-
mapped these phenomena. Empirically success-
nouncements (Pollner, 1974, p. 35).
ful theories were considered to be “true”, and
their categories were considered to be Indeed, the inability to invoke and rely on the as-
genuinely referring. sumption of a commonly shared world is taken
However, this is no longer the consensus view as a mark of naivete, as in children, or incapacity,
in the physical sciences (see, for example, ChaI- as in schizophrenics:
mers, 1982; Feyerabend, 1975; Heisenberg,
1958; Jones, 1983; Kuhn, 1970; Laudan, 1977, Such a naivete or incapacity may be on the fringes of con-
1981, 1984; and Poianyi, 1964. See Hines, ceivability for adult Western thinkers inasmuch as the
1989b, Appendix 1 for a summary of this litera- mundane schema seems to be implicated in the very no-
tion of person. One who never grasped the sense of that
ture.) In the social sciences, the undermining of
which was other than and independent of himself- the
realism has been even more complete. A variety world-could not grasp himselfasa seff(PoBner, 1974,
of authors have shown that social reality is refIe- pp. 39-40).
xively constituted by accounts of reality, and
that the decisions and actions of social agents An abundance of “evidence” exists which has
based on these accounts, constructs, maintains the potential to contradict the commonsense or
and reproduces social reality (e.g. Garfinkel, mundane assumption of an essentially objective
1967; Garfinkel et al, 1981; Berger & and intersubjective world, for example, disputa-
Luckmann, 1971; Giddens, 1976, 1984). Even tions in science, disagreements in everyday
the social science disciplines themselves, and affairs, the sea of different opinions to one’s own,
the discipline of disciplines, philosophy, have varying perceptions, contradictory testimony in
been seen not so much to describe as to consti- court, conflicting news coverage, etc. And yet,
tute human subjectivity and social reality (see rather than breaching this assumption, such evi-

5 The philosophy of realism is named differently in diRerent contexts. It is sometimes called “convergent realism” (see, for
example, Laudan, 1981). and “scientific realism” (see, for example, Will, 1981). It also has developed into a number of
variants. The discussion in this paper, however, does not require these distinctions to be articulated.

’ Realism presumes a concept of truth. The usual concept of truth that is presumed is the correspondence theory of truth. See
McHugh (1971) and Laudan (1981, 1984).
318 RUTH D. HINES

dence is recuperated to reinforce the notion of a between the life and death of the chicken and an
shared world. The ditficulties of accessing the affirmative or negative response are formulated
supposedly shared world, are, through the pro- when the interrogator addresses the &nge. Any
cess of mundane reasoning, turned into testi- verdict of the oracle is corroborated by asking
mony for the existence of a shared world. How essentially the same question at a later time with
the process of commonsense reasoning both the response alternatives reversed. Thus, if the
protects and reproduces the incorrigible prop- oracle was initially instructed to kill the chicken
osition of an objective world is analysed by Poll- if it intended an affirmative reply, it is sub-
ner (1974). sequently instructed to permit the chicken to
Breaching the assumptions and reasoning of live if it intends an affirmative (Evans-Pritchard,
one’s own culture represents a highly problema- 1937, p. 299).
tic task, because the tools for doing so - the as- There are a number of possible events which
sumptions and reasoning that will be perceived would seem to call the reality or infallibility of
as convincing by members of one’s culture - the poison oracle into question. For example,
are the very target of the intended breaching.’ the result of the second test may contradict the
Pollner (1974) overcomes this difBculty by result of a first test; or the findings of oracles may
analysing how a central assumption of Azande be belied by experience, or two oracles may give
culture is protected and reproduced by Azande contradictory answers to the same question.
commonsense reasoning. He then shows that However, Evans-Pritchard’s (1937) attempts to
our central assumption of an objective, shared confront the Azande with such seemingly com-
world is maintained as infallible by our process pelling evidence against the oracles were met
of reasoning which is operationally analogous to with charity, and even amusement at the absur-
Azande reasoning. dity of his questions and he was regarded with
The following section describes how the the tolerance held in our own society for recog-
Azande assumption of a “poison oracle” is real- nized cultural “incompetents”, such as children.
ized. The subsequent section describes how the As Evans-Pritchard (1937) describes, what
assumption of an “objective, intersubjective re- would be to us contradictory evidence because
ality” is realized through commonsense reason- of a disbelief in the infallibility of oracles, is not
ing, as exemplified by the reasoning of members seen as contradictory by the Azande. Indeed
of the FASB. such evidence, for example, the killing of both
fowls, or the sparing of both fowls, is expected
by Azande, and the errors, as well as the valid
THE “BJGUITY” OF THE POISON ORACLE judgements, prove to them its infallibility. “The
fact that the oracle is wrong when it is interfered
Pollner (1974) draws on Evans-Pritchard’s with by some mystical power shows how accu-
(1937) description of the operational structure rate are its judgements when these powers are
of the infallible “poison oracle”. The poison ora- excluded” (Pollner, 1974, p. 42).
cle is a device used by the Azande to gain knowl- For the Azande, the existence and infallibility
edge of future or otherwise unknown matters. A of the poison oracle is an incorrigibleproposi-
ritually prepared poisonous substance is ad- tion. While seemingly formulated as a descrip-
ministered to a chicken and the poison, benge, is tive assertion, it is in fact a proposition or as-
interrogated. The benge responds in an affrrma- sumption which “no happening whatsoever
tive or negative fashion by either killing the chic- would prove false, or cause anyone to withdraw”
ken or allowing it to live. The correspondence (Gasking, 1965, p. 431, quoted by Pollner, 1974,

7 One means of revealing the contingency of a worldview and its dependence on socially reproduced assumptions and
reasoning, is to “stand outside” the view and describe the steps by which a person is inculcated with this worldview. Hines
(1988a) shows how an “outsider” is initiated to the worldview held by “members” of the accounting profession/tribe.
THE FASB’SCONCEPTUAL FRAMEWORK 319

p. 43). The incorrigibility of the poison oracle’s where the creeper grows, (5) age of the poison,
infallibility is a continual social accomplishment. (6) anger of the ghosts, (7) sorcery, (8) use, etc.
It is at once the process, presupposition and pro- (Evans-Pritchard, 1937, pp. 329-330).
duct of Azande reasoning practices. Handel ( 1982, p. 36) describes the process of
It isprocess in that the assumption’s incorrigi- the reflexive construction of reality:
bility is assured in no other way than through the
skill, creativity and discipline of the Azande in Things may exist independently of our accounts, but they
explaining discrepancies between oracle ver- have no human existence until they become accounta-
dicts and the actual fall of events. Simultane- ble. Things may not exist, but they may take on human
significance by becoming accountable . Accounts de-
ously, the doctrine is a presupposition of the
tine reality and at the same time they are that reality
Azande practices in that the field of possibilities The processes by which accounts are offered and ac-
from which explanations are selected are predi- cepted are tire htndamental social process . . Accounts
cated on the oracle’s infallibility: the candidate do not more or less accurately describe things. Instead
they establish what is accountable in the setting in which
explanations all share in common that they lo-
they occur. Whether they are accurate or inaccurate by
cate the source of the discrepancy in conditions some other standards, accounts define reality for a situa-
which leave the oracle’s validity unquestioned tion in the sense that people act on the basis of what is ac-
and intact. Finally, in as much as that the incor- countable in the situation of their action. The account
rigibility of the oracle’s truth is a presupposed provides a basis for action, a deEnition ofwhat is real, and
it is acted on so long as it remains accountable (p. 36).
feature of the reasoning process through which
it is sustained, and in as much as that the embed-
dedness of that presupposition produces ac-
counts which reflexively preserve its own incor- THE REALITY OF THE OBJECTIVE,
rigibility, the doctrine presents itself as the INTERSUBJECTIVE WORLD: PROCESS,
given, stable feature which from the point of PRESUPPOSITION AND PRODUCT OF FASB
view of the Azande, it always was (Pollner, 1974, MEMBERS REASONING
pp. 44-45).
Evans-Pritchard (1937) points out that the Pollner (1974) shows how reasoning in our
Azande follow the same logical rules that we use culture maintains the incorrigible proposition of
in reasoning (see also Bernstein, 1983, pp. 1OO- an objective, intersubjectively comparable
10 1). In the face of noncorroborating accounts, world, in the same way as Azande reasoning
their solutions consist of conjectures as to which maintains the incorrigible proposition of an in-
of the suppositions contained in the implicit fallible poison oracle..
ceteris paribus provision may now be seen to This section analyses the reasoning of the
have been inoperative or unsatisfied at the time FASB members as recorded in the CF. This
of the actual event. “For mundane reasoners, the reasoning is not at all unique to the FASB mem-
ceterisparibus provision is an endless and com- bers or even formulators of other CF’s. As
pelling source of explanations of disjunctures” pointed out previously, the FASB’s CF reflects
(Pollner, 1974, p. 52). the reasoning of members of the accountingpro-
A variety of breaches of the ceteris paribus fession, and industry, and user groups. It is a pro-
provision may be drawn on to explain an oracle’s cess of reasoning, maintaining the assumption of
self-contradictions and the one that seems to fit an objective, intersubjective world as central,
the circumstances best is chosen. The selection which is exhibited by normally socialized adults
of an explanation is often aided by the peculiar in their daily Iife in westernized societies, and is
behaviour of the fowls when under the influence by no means confined to capitalist societies.
of the poison. The failure of the oracle, may be at- This section attempts to show how the object-
tributed to: ( 1) the wrong variety of poison hav- ive world is a presupposition, process, and pro-
ing been gathered, (2) breach of a taboo, (3) duct of FASB reasoning; why the CF, which is
witchcraft, (4) anger of the owners of the forest predicated on an unselfconscious taking-for-
320 RUTH D. HINES

granted of this presupposition is inevitably prob- accounts, IQ scores signify, and that signification
lematic, and why, despite all problems, this pre- can powerfully predicate social conditions and
supposition is never seriously threatened but consequences. But the potential of this analogy
maintained and reproduced throughout the CF for exploring the relationship between such an
(and financial accounting-related discourse). account, and the reality it signifies and produces,
The board states in the Summa y ofPrinciple is not pursued by the board. Discussion is con-
Conclusions of concepts statement No. 2 (FASB, fined to the following statement which serves as
1980, p. 3) that reliubility of a measure (one of a mystification rather than an exploration:
the two key decision-useful qualities of account-
ing information, FASB, 1980), “rests on the faith- Representational faithfulness is closely related to what
behavioral scientists call %aJidity” as in the statement
fulness with which it represents what it purports
that intelligence quotients are (or are not) a valid mea-
to represent,” i.e. a necessary quality of reliabll-
sure of intelligence. Validity is a more convenient term
ity is representational faithfulness (FASB, 1980, than representational faithfulness, but out of its scientific
pras 58-71). The Board recognizes that in context it has too broad a connotation for it to be an ap-
order to give the concepts of reliability and rep- propriate substitute (FASB, 1980, footnote 9)”
resentational faithfulness content, and make
them operational, the phase “represents what it Handel ( 1982) describes how the fundamental
purports to represent” must be elucidated: the commonsense assumption that the social world
relationship between accounting as a signifier has real characteristics which exist concretely
which “represents” and the referent “that which and independently of thought and action, sur-
it purports to represent” must be clarified. In an vives loss of faith in it:
effort to do this, many analogies are drawn be-
tween the relationship of financial accounting to Consider the assumption that the world has real charac-
teristics that are imposed on us independently of our
social reality, and other relationships. These in-
knowledge of them. We assume of these characteristics
clude the relationship between: a map and that they partially compel our perception but also that
terrain (FASB, 1980, para. 76); a model of an en- error, distortion and bias are possible in our understand-
terprise and the enterprise itself (FASB, 1980, ing. Recognizing that error is possible permits us to re-
para. 76); the label on a drug bottle and what is consider particular bits of knowledge without consider-
ing the accuracy of our assumption that the world has
in the bottle (FASB, 1980, para. 60 ); a mirror and
real characteristics. The recognition of error suggests an
a person (FASB, 1980, para. 76); a loudspeaker explanation for ditrerences of opinion, changes of mind,
and sounds from a phonograph record (FASB, perceptions that do not support successful action, and so
1980, para. 76); an IQ test and intelligence on (p. 56) [emphasis added].
(FASB, 1980, footnote 9).
The analogies are often inappropriate, Like the Azande confronted with evidence
because the referent is a physical phenomenon that would otherwise threaten the reality of the
such as physical terrain, which unlike a business poison oracle, FASB members must explain the
enterprise, pre-exists accounts and significa- non-confirmations or “puzzles” or “dis-
tions of it. Terrain does not arise in interaction junctures” (Pollner, 1974) to which their un-
with accounts of it such as a map, but exists con- questioned belief in a concrete, objective world
cretely and independently of them. gives rise. As we all do - outside the writing of
In other cases, the analogy is more apt, such as some academic papers - they deflect the ano-
that between an IQ test and intelligence. “Intelli- maly onto an implicit ceterisparibus provision:
gence” is a human construct, and like financial some condition or event intruded to confound

S The analogy is raised again, but is not explored: “The problem of defining intelligence and of judging whether intefhgence
tests validly measure it may be even more diti’icult because of the many tierent manifestations of intelligence, the problems
of Separating innate and acquired abilities, standardifing for differences in social conditions, and many other thiigs” (FASB,
1980, pat-a. 68).
THE FASB’S CONCEPTUAL FRAMEWORK 321

the situation.’ The unanimity of experience pre- incorrigible assumption that there is a concrete,
supposed by a commonly shared world relies on objective economic world which exists inde-
at least four presuppositions: ( 1) a community of pendently of social practices which account for
others who are deemed to be observing the it.
same world, (2) who are psychically constituted In statement No. 2 (FASB, 1980, para. 76) the
so as to be capable of veridical experience, (3) board states:
who are motivated so as to speak “truthfully” of
their experience, and (4) who speak according The financial statements of a business enterprise can be
to recognizable, shared schemes of expression. thought of as a representation of the resources and obli-
gations of an enterprise and the financial flows into, out
(Schutz, 1967, pp. 321-323, quoted by Pollner,
of, and within the enterprise - as a model of the enter-
1974, p. 48). On the occasion of a disjuncture, prise. Like all models, it must abstract from much that
mundane reasoners are prepared to call these goes on in a real enterprise. No model, however sophisti-
and other features into question. For a mundane cated, can be expected to reflect all the functions and re-
reasoner, a disjuncture is compelling grounds lationships that are found within a complex organization.
for believing that one or another of the condi- To do so, the model would have to be virtually a repro-
duction of the original.
tions otherwise thought to obtain in the antici-
pation of unanimity, did not (Pollner, 1974, p.
48). Seeking to elucidate this further, a footnote is
Many possibilities which could interfere with added:
an unproblematic “measure”, “reflection”, “rep-
resentation”, ~‘communication” or “mapping” of Nothing is implied here about the possible predictive
economic reality are presented by the FASB. For uses of the model. While it is true that models are gener-
ally used to make predictions, they need not be so used.
example: “error” (FASB, 1980, para. 73); bias - A model is no more than a representation of certain as-
in the measurement method or measurer (FASB, pects of the real world (FASB, 1980, footnote 10).
1980, paras 77-79); distortion - due to a bad
reflecting medium such as a “distorting mirror” The board attempts to tackle the recalcitrant but
or an “inexpensive loudspeaker” (FASB, 1980, elusive problem of reflexivity early in the CF
para. 76); the disappearance of things through
project. It adopts the following strategy:
loss (FASB, 1980, para. 76); approximation
(FASB, 1980, para. 64); ambiguity (FASB, 1980, The FASB Exposure Draft, Objectives of Financial Re-
paras 65-67); uncertainty (FASB, 1980a, paras porting and Elements of Financial Skatements of Busi-
37-42); incompleteness (FASB, 1980, paras 79- ness Entetprtses (December 13, 1977) anempted to dis-
80); simplification, condensation and aggrega- tinguish the representations from what they represent by
giving them different names. For example, assets referred
tion (FASB, 1984, paras 20-22); lack of experi-
only to the financial representations in financial state-
ence of information users (FASB, 1980, para 50) ments, and economic resources referred to the real-
and differences of opinion (FASB, 1980, para. world things that assets represented in financial state-
50). At no point do the FASB members doubt the ments (FASB, 1980a, footnote 3).

‘In a similar way, mainstream positive researchers seeking to correlate attributes of the social world and “measure” its
structure, do not reject their theories. Bather, via mundane reasoning, they locate the failure of their test in the ceferisparibus
condition. The implicit assumption of an objective and intersubjective structure is thus not challenged. In fact, such failures
paradoxically increase the conviction that there is such a structure “there”.
Hines ( 19BBb) describes how anomalies and di~onSrmations of the EBicient Markets Hypothesis (EMH) are deflected onto
ceteris par-i&us assumptions concerning: data quality; assumptions relating to transactions cost estimation; whether
information is good/bad; assumptions regarding the timing of events and information release; a specific asset pricing model;
measurement theories; instruments, and procedures. Despite an accumulation of non-corroborating evidence, the EMH has
not been abandoned. It is still believed that sophisticated investors can “see through” cosmetic accounting practices and
“unravel” accounting numbers to reveal the real underlying economic reality.
322 RUTH D. HINES

But this strategy, to simplify matters by sig- underlie generally accepted practice. As such,
nifying the signifier by one name, and signifying rather than providing aguide for practice, the CF
the referent by another name, proved unsuc- is tuutologous with practice. This circularity is
cessful. The attempt to pull the signifier and the typical of preceding attempts at formulating a
reality it constitutes apart, and thus unwittingly conceptual framework (Dopuch & Sunder,
to undermine the whole process of reality con- 1980, pp. 3-4).
stitution and reproduction, “caused consider- Moreover, the CF is typified by circularity
able confusion and was criticized by respon- within itself. For example, within statement No.
dents” (FASB, 1980a, footnote 3). In the revised 2 (FASB, 198Oj, information qualities such as re-
exposure draft of statement No. 3, the board “re- liability, are stated to depend upon the achieve-
verted to the more common practice of using ment of other qualities, such as representational
the same names for both”! (FASB, 1980, footnote faithfulness, neutrality and verifiability (paras
3). 59-62); but the discussion of these latter qual-
Molotch & Boden ( 1985) discuss the riskiness ities relies largely on reference to other, simi-
of talking about talk, or “meta-talk” (SchiErin, larly non-operationalized information qualities.
1980). To raise the subject of the signifying pro- For eirample, the discussion of neutrality relies
cess “threatens the incorrigible assumption of on relevance, reliability and representational
the objectivity principle; this places a special faithfulness (paras 98, 100). The necessary and
burden on the talker who might attempt it” sufficient conditions for obtaining any of these
(Molotch & Boden, 1985, p. 280). qualities are not stated.
Chastened by the reaction to their uninten- At various points, in an attempt to break out of
tional subversion of the process of reality con- this web of circularity, the board invokes the no-
struction, the Board members signalled in state- tion of the “informed reader” of financial state-
ment No. 3 (FASB, 1980a, para. 7) that they ments, who will have sufficient knowledge of ac-
would, in future, avoid innovative signifying counting practice to interpret financial state-
moves and follow the usual practice of calling a ments in such a way that they will be, for
thing by its name: example, representationally faithful (FASB,
1980, para. 64). The board here has invoked
ThisStatementfollows the common practice of calling by what Schutz (1962, p. 62) calls “reciprocity of
the same names both the financial representations in perspectives”: an “informed reader” will “see”
financial statements and tbe resources, claims, transac- what was “seen” by the financial statement pre-
tions, events or circumstances that they represent. For parer (see also Molotch & Boden, 1985, pp. 281,
example inven~oty or usset may refer either to merchan- 284).
dise on the floor of a retail enterprise or to the words and
This resort to an “informed reader” is a gloss.
numbers that represent that merchandise in the enter-
prise’s financial statements, andsuleor revenue may refer Garfinkel & Sacks ( 1970) analyse the. nature of
either to the transaction by which some of that merchan- glosses. A gloss is a practice for “doing accounta-
dise is transferred to a customer or to the words and num- bly definite talk” (p. 353), where the contradic-
bers that represent the transaction in the enterprise’s tions or difficulties to which the incorrigible as-
financial statements.
sumption of a single, objective world gives rise,
make such definite talk difficult to achieve. Glos-
One of the features of the FASB’s CF project sing practices are “practices whereby speakers
which has puzzled writers on the subject, is that, in the situated particulars of speech mean some-
although intended to prescribe or guide prac- thing different from what they can say in just so
tice, the final CF statements describe practice many words” (Garfinkel & Sacks, 1970, p. 342).
(Dopuch & Sunder, 1980, pp. 3-4; Miller & Unable to explain what they mean in just so
Redding, 1986, pp. 104-105; Solomons, 1986, p. many words by representational faithfulness, the
122). The FASB’s CF represents a distillation of FASB members invoke the reciprocity of per-
the main categories, rules and principles which spectives assumption to solve the disjuncture.
THE FASB’S CONCEPTUAL FRAMEWORK 323

AN EXAMPLE OF THE REFLEXIVE port, suggests that a “healthy” set of financial


CONSTRUCTION OF REALITY: CORPORATE statements is not faithfully representational, and
“SUCCESS”OR “FAILURE” that a firm “really” is in trouble. If this new defin-
ition of reality is accepted by say creditors, they
If people take a definition or description of re- may panic and precipitate the failure of the firm,
ality, for example, an organizational chart, or a or through the court, they may petition for a
budget, or a set of financial statements, to be re- liquidation. A new definition of reality, if ac-
ality,” then they will act on the basis of it, and cepted, will be “real in its consequences”,
thereby perpetuate, and in doing so, validate that because people will act on the basis of it.
account of reality. Having acted on the basis of That a definition of reality is real in its conse-
that definition of reality, and having thereby quences creates a dilemma for auditors. If say
caused consequences to flow from that concep- auditors qualify their report with respect to the
tion of reality, those same consequences will ap- going-concern assumption, and/or insist that a
pear to social actors, in retrospect, to be proof corporation’s financial statements be prepared
that the definition of reality on which they based on the basis of liquidation values, this in itself
their actions, was “real” (see Hines, 1988a, for an may precipitate the failure of a company which
illustration of this in relation to financial ac- may otherwise have traded out of its dficulties.
counting). As Garfinkel(1967, p. 53) states: “not For this reason, it is most rare that auditors will
only does common sense knowledge portray a take such a step:
real society for members, but in the manner of a
self fulfilling prophecy the features of the real The trouble with telling shareholders that a company is
on the brink of bankruptcy is that the publicity which a
society are produced by persons’ motivated
going concern qualification draws may precipitate the
compliance with these background expectan-
event which nobody wants to happen . .
cies”. Indeed to presume a dichotomy between Getting the answer wrong, with the auditor producing
conceptions or definitions of reality and social a report which questions the going concern and later
reality “itself” as in commonsense reasoning, is finding out that there was insufficient basis for doing so is
to overlook the completely interdependent, not only embarrassing but expensive.
The company can sue for the damage done to its ability
interactive and mutually constitutive nature of
to trade, so it is justifiable for an auditor to think three or
social reality and the social practices and dis- four times before qualifying and then, possibly, err in the
course which “describe” it. company’s favor (Coombe, 1984).
A set of financial statements may be rejected
as a “true” definition of reality, rather than ac- Auditors are placed in the position of having
cepted. Financial statements may be considered to attest the health and stability of a company,
to be not representationally faithful, on the basis and yet at the same time, that attestation can in-
of another account, such as an investigator’s ac- fluence the health and stability of a company.
count, an auditor’s account, an SEC, or a news- They thus face two risks due to this reflexivity of
paper account, or even on the basis of amended, their report: that which more frequently occurs,
or subsequent, financial accounts. Decisions and of being sued for providing a “clean” audit re-
actions based on that account, predicate conse- port on a company which subsequently fails; and
quences which, in retrospect, generally confirm also, that of providing a qualified audit report
the validity of that subsequent account. For and precipitating the failure of a company which
example, say an investigator, or a newspaper re- may otherwise have survived, and thus of being

” Thisdiscussion is largely based on an ethnomethodological view of knowledge. This view gives priority to the reflexivity
of the relationship between knowledge/accounts and reality, and largely ignores the question of how some accounts are
privileged over others (i.e. are considered to be “knowledge” or “true descriptions” or “correct conceptions”) and become
“realized”. That is, this perspective ignores issues ofpoumzr. However, an understanding of the refationship between accounts
and reality seems to be a prerequisite to understanding how some accounts become privileged and become actualized.
324 RUTH D. HINES

sued by management, shareholders, creditors Buckner, 1978; Garfinkel, 1967, pp. 104-l 15,
and/or some other party associated with the for the way that reality is constructed in court).
company. ’ ’ As Bail & Foster ( 1982) discuss, researchers in
If the corporation concretely existed, inde- the area of failure prediction research have not
pendently of accounts of it, and if accountants elucidated a theory of financial distress. The
and auditors occupied a privileged position with exact relationship between the reality of
respect to observing and measuring this con- financial distress and financial accounting has
crete, independent facticity, then the roles of the not therefore been addressed. One of the impli-
accountant and auditor would be unproblema- cations of this paper is that there is not, as is im-
tic, and perhaps the FASB’s CF would be opera- plicitly assumed in failure prediction research, a
tional. But as will be elucidated in’the following unidirectional relationship between financial ac-
section, the “health”, “size”, “stability”, “per- counting ratios and financial distress, i.e.
formance”, etc. of the firm, arise, inter alia, in financial ratios reflect the state of the firm.
interaction with accounting practices and ac- Rather, there is a bidirectional, interactive rela-
counting standards. For example, the leverage tionship between financial accounting ratios and
ratio or “stability” of a corporation, is interde- financial distress. The role of accounting in the
pendent with asset valuation rules, as is also the consttiction of the reality of financial distress
“size” of a firm. “Performance” is interdepen- may be seen in a paper by Brooker (1969).
dent with accounting methods regarding re- Brooker discusses the use made of financial ac-
venue recognition, expensing and amortization counting evidence by courts in retrospectively
methods, etc. constructing: (a) the exact point at which a busi-
The audit report is one of many reflexive ac- ness is determined by the court to have “become
counts, social practices, decisions and actions insolvent”; (b) by how much the financial posi-
which create and perpetuate the reality of or- tion of the firm deteriorated between this point
ganizations. The “validity” of an audit report, is of its insolvency and its final collapse; and (c)
determined, in retrospect, by other reflexive ac- what changes occurred in the “structure” of
counts. For example, during a real-estate reces- liabilities after the business became insolvent.
sion, an auditor may judge that it is reasonable A most important account that is considered
for a firm to carry real-estate in its balance sheet by a court in determining the reasonableness or
on the basis of capitalized historic costs, even validity of an audit report is the audit working
though that valuation may be well above market papers. Gibbins ( 1984) conducted a number of
value at the date of the balance sheet. The au- interviews of public accountants and auditors.
ditor may reason that when the real-estate mar- His interviews reveal how audit working papers
ket recovers, these investments will realize at reflexively construct the “reality” of what hap-
least the amount of those capitalized costs. But if pened during an audit: “justification of judge-
the firm fails prior to such a real-estate recovery, ment therefore must contain rationalization,
a court may determine that the auditors over- particularly if based on experience and/or con-
valued the reality of the firm - the court itself structed after the decision/action has been im-
will construct this retrospective definition of the plemented (for example, when the working
reality of the firm, on the basis of expert-witness paper is written up) . . . During interviews . . . in-
accounts, and other reflexive accounts (see dications of the [rationalization/justification]

“The reflexivity of bankruptcy research itself, is acknowledged by researchers, i.e. that a highly “accurate” bankrupcty
prediction theory would be likely to influence the behaviour offirms, and this would in turn, aIfect or perhaps totally mitigate,
the performance/validity of the theory. Indeed such “confounding” of a bankruptcy prediction model might be the major
purpose of it -to save firms from bankruptcy.
Williams ( 1982) discusses the problem which reflexivity presents for behavioural accounting research into the predictive
usefulness of accounting information.
THE FASB’S CONCEF’TUAL FRAMEWORK 325

process were mentioned, such as assertions that vade it. He asks, “Well, why can’t they [accoun-
the audit working papers ‘do not tell the real tants] tell the truth?” (p. 235).
story’ of why decisions are made, and stories But what is the “truth” about an organization?
about selecting, or excluding, information from What is the boundary which separates that
the explanations so as to create a desired por- which is an organization, from that which is not
trayal of what happened” (p. 117). an organization? What is the truth, for example,
The FASB members allude to the way in which about the “size” of a particular organization? An
predictions may be self-fulfilling (FASB, 1980, organization’s “size” is frequently taken to be the
para. 55) but not to the reflexivity offinancial ac- amount of its gross assets, or net assets. But what
counts. The CF treats the “events” which consti- are “assets”? At what point does an “asset” (or
tute “success” and “failure” as unproblematic: liability, capital, revenue, or expense) become
accounting information may “favour certain in- so intangible, uncertain, unenforceable, uniden-
terests, but only because the informationpoints tifiable, executory, and/or non-severable, that it
that way, much as a good examination grade ceases to be an ‘asset”, and hence ceases to be
favours a good student” (FASB, 1980, para. 107, considered to be a part of an organization? (see
emphasis added). Hines, 19SSa).
As Meyer ( 1983) suggests, in answer to the
question, “why can’t [accountants] tell the
“REALITY” IS DEPENDENT ON A BODY OF truth?” (p. 235):
“KNOWLEDGE”
Becauseaccountingstructllresare myths,and important
The Azande have a coherent body of knowl- ones . As myths, they describe the organization as
bounded and unihed . . OtganizationaJ researchers have
edge about oracles, and this body of knowledge
endless theoretical debates on what the boundaries are
reflexively provides grounds for absolute faith in or whether there are any: the accountants settle the mat-
the validity of that knowledge. “Westerners look ter by definitiott, and acquiring boundaries means, for an
at oracular practices to determine ifin fact there organization, acquiring reality (pp. 235-236) [emphasis
is an oracle. The Azande know that an oracle added 1.

exists. That is their beginning premise. All that


Financial accounting represents a body of
subsequently happens they experience from
knowledge (Mehan & Wood, 1975, pp. 9-20)
that beginning assumption . . . The incorrigible
which reflexively constructs the “truth” about
faith in the oracle is compatible with any and
organizations. Financial accounting knowledge
every conceivable state of affairs” (Mehan &
is built on the premise that business enterprises
Wood, 1975, p. 9).
are composed of “capital”, “assets” and
Similarly, the FASB members know there is an
“liabilities”. Financial accounting is grounded in
objective world “out there”. This knowledge
the simple tautology’2 that:
generates many contradictions, but these only
serve to strengthen the conviction that there is capital = assets - liabilities.
an objective world and that more thought, more
Upon this tautology has been developed a body
effort, more research, more expertise will result
of financial accounting knowledge, concerning
in resolving them. Only an “outsider”, for
the following three questions about economic
example, a sociologist, such as Meyer (1983) is
reality.
likely to strike at the heart of this realist per-
spective, by directly addressing the fundamental
(a) How “capital”, “assets” and “liabilities” (i.e. organiza-
assumptions on which it is built, and the conse- tions) are to be defined, or “recognized”.
quent problems and contradictions which per- (b) HOW increments and decrements in capital, assets

.-
“See Schuster ( 1984) for a discussion of how the processes of knowledge-production mask their tautologousness.
326 RUTH D. HINES

and liabilities, such as revenue, gains, expenses and los- tion, scientific work, and the like, uses for which a high
ses, are to be defined, and hence recognized. degree ofaccuracy is required because an error of a few
(c) How each of those in (b) above, are to be measured. seconds or a fraction of a second may have large conse-
quences. In everyday language, both the wristwatch and
The answers to each of these three questions - the chronometer are said to be reliable. By the standard
of the chronometer, the wristwatch, in fact, is unreliable.
in other words, generally accepted accounting
Yet the watch’s owner does not perceive it to be unreli-
principles, practice and accounting standards - able, for it is not expected to have the accuracy of a
play a vital social role in constituting the “size”, chronometer.
“performance”, “stability” and “financial posi- Fortunately, that is well understood by accountants.
tion” - in short, the reality or structure -of or- They recognize that a dilference between an estimate
and an accwute measurement may be material in one
ganizations.
context and not material in another (FASB, 1980, para.
73 and 74) [emphasis added].

The board members’ failure to appreciate that


REALITY IS INDEXICAL
concepts are dependent upon a social context
“However deeply one digs . . . socially pro- for their existence and meaning results in a false
duced phenomena have no intrinsic meaning. dichotomy being drawn in the CF between con-
Their meaning arises in socially organized cepts and practice. It is illuminating to see the
attempts [both lay and professional]. . . to recog- “dead end’ to which the FASB (1980, paras 63
nize and count them” (Silverman, 1975, p. 275). 64) comes, being committed to this dichotomy,
Meaning is not therefore corresponding but is in relation to the concept of goodwill:
situation-specific or indexicul:meaning changes Representational faithfulness is correspondence or
with time, place, context and culture; and mean- agreement between a measure or description and the
ing cannot exist apart from some social context phenomenon it purports to represent .
(Mehan & Wood, 1975; Handel, 1982; Garlinkel, Clearly much depends on the meaning of the words
“purports to represent” in the preceding paragraphs.
1967; Berger & Luckmann, 1971; Silverman,
Sometimes, but rarely, information is unreliable because
1975; Leiter, 1980). of simple misrepresentation. Receivables, for example,
In the same way that the members of the FASB may misrepresent large sums as collectible that, in fact,
gloss the reflexivity of financial accounting, so are uncollectible. Unreliability of that kind may not be
they gloss the indexicality of financial account- easy to detect, but once detected its nature is not open to
argument. More subtle is the information conveyed by an
ing. The CF states that what is material in one cir-
item such as “goodwill”. Does a balance sheet that shows
cumstance, may not be material in another cir- goodwill as an asset purport to represent the company as
cumstance (FASB, 1980, paras 123132), and having no goodwill except what is shown? An unin-
“inkmnation that is representationally faithful in formed reader may well think so, while one who is famil-
the context for which it was designed . _ . may iar with present generally accepted accounting princi-
ples will know that non-purchased goodwill is not in-
not be reliable when used in other contexts”
cluded.
(FASB, 1980, para. 71). In attempting to resolve
this apparent contradiction the Board again re- The reader of the CF is not presented with a
sorts to analogy: clarification of goodwill, or of representational
faithfulness. Bather, it is stated that, if the reader
Different uses of information may require different de-
grees of reliability and, consequently, what constitutes a
is familiar with practice, they will understand
material loss or gain in reliability may vary according to these concepts, and ifthey are not, they will not.
use. An error in timekeeping of a few seconds will usuaIly The concept of goodwill is context-specific, or
be acceptable to the owner of an ordinary wristwatch, indexical - its meaning is that with which a
whereas the same error would normally cause a
reader or user endows it.
chronometer to be judged unreliable. The difference is
linked to use - a wristwatch is used for purposes for
Courtis (1983) states with respect to the
which accuracy within a few seconds (or perhaps a few nature of “goodwill”: “by itself, the word has no
minutes) is satisfactory; a chronometer is used for naviga- inherent power and no inherent absolute con-
THE FASB’S CONCEPTUAL FRAMEWORK 327

ceptual meaning” (p. 18). He lists a chronology reproduce the assumption of an objective world
of 91 definitions of goodwill which have been and as such they play a part in constituting the
created and used in the past century by accoun- social world. Furthermore, it may be seen from
tants, businessmen, judges, lawyers, economists, the preceding discussion how CFs provide SO-
and others. As Courtis (1983, p. 18) points out, cial legitimacy to the accounting profession.
before the question “What is goodwill?” can be Since the objectivity assumption is the central
answered, one must know the situation, time, premise of our society, Molotch & Boden
participants and place in which the concept is (1985) argue that a fundamental form of social
used. Courtis (1983) illustrates how the reality power accrues to those who are able to “trade
of a category such as goodwill, is reflexively on the objectivity assumption” (p. 281). Legiti-
created by accountants, judges, etc. in social in- macy is achieved by tapping into this central
teraction, and is thus situation-specific and con- proposition because accounts generated around
text-dependent rather than corresponding. As this proposition are perceived as “normal”. It is
he concludes, one must look to the meaning of perhaps not surprising or anomalous then, that
an expression as established in a particular social CF projects continue to be undertaken which
situation, rather than attempt to deduce or rely on information qualities such as “represen-
discover a single, best, true, accurate or rep- tational faithfulness”, “neutrality”, “reliability”,
resentationally faithful, meaning. etc., which presume a concrete, objective
One may start out with the objective of con- world, even though past CFs have not suc-
ceptual claritication, as does the FASB in its CF ceeded in generating accounting standards
project. However, since the only context in which achieve these qualities. The very talk, pre-
which concepts are meaningful is in the context dicated on an assumption of an objective world
of their use, the FASB, inevitably, resorts to draw- to which accountants have privileged access via
ing on accounting practice in an attempt to dis- their “measurement expertise”, serves to con-
till its CF. Thus, the fact that has perplexed many struct a perceived legitimacy for the profession’s
researchers who have written about the CF, that power and autonomy.
whilst intended to be prescriptive, it is largely This paper has not privileged “reason” but
descriptive. rather, treated it as a social accomplishment.13
Brown (1987, p. 194) states: “Thus, rationality,
rather than being a guiding rule of individual or
CONCLUSIONS AND DIRECTIONS FOR social life, turns out to be an achievement . . . We
FUTURE ACCOUNTING RESEARCH may now focus on persons and groups as en-
gaged in continuing processes of constructing
Pollner ( 1987, p. 7) states: “for radical inquiry ‘rationality”‘. When reasoning and rationalizing
. . . the phenomenon par excellence is not the are demystified and the product of reasoning is
world per se but worlding, the work whereby a not treated as privileged and compelling, but
world per se, and the attendant concerns which rather treated as a product of worlding, a radical
derive from a world per se - truth and error, to reappraisal of the objectives of research follows.
mention two - are constructed and sustained.” From such a perspective, researchers cannot see
This paper, rather than adopting the conven- themselves as engaged in an objective enterprise
tional functionalist view of CF projects, has which does not involve subjectivity or moral
adopted a social constructionist perspective on choices, and neither can they see accounting
the FASB’s CF. From this perspective, it has numbers (or any other representation) as value-
shown how the FASB’s CF, and other CFs, are a free. As Rorty ( 1980) argues, an attempt to exp-
form of “worlding”. CFs presume, legitimize and licate “rationality” and “objectivity” in terms of

l3 However, the style of the paper, relying as it does on logical and adequate argument to reason the case against r-n, does
prioritize and so reproduce reason, and its everyday and academic legitimacy.
328 RUTH D. HINES

conditions of accurate representation is “a self- compellingly the normal discourse of the


deceptive effort to eternalize the normal dis- Azande envelops even the perception of self:
course of the day” (p. 11). Sartre ( 1956) sees the
attempt to gain an objective knowledge of the A man accused ,of bewitching another may hesitate to
deny the accusation and even to convince himself for a
world, and thus of oneself, as an attempt to avoid
short while of its evident untruth. He knows that often
the responsibility for choosing one’s project. witches are asleep when the soul of their witchcraft-sub-
In the light of the discussion in this paper, it is stance flits on its errand of destruction. Perhaps when he
suggested that a socially desirable stance for re- was asleep and unaware something of the kind happened
and his witchcraB led its independent life. In these cir-
searchers is to see truth as “what it is better for
cumstances a man might well be a witch and yet not
us to believe” rather than as the “accurate rep- know that he is one. In Zande culture witchcraft is so
resentation of reality” (Rorty, 1980). Resear- much a daily consideration,‘is so much taken for granted,
chers may help society to break from outworn and so universal, that a man might easily suppose that
vocabularies and attitudes, a task of social signifi- since any one may be a witch it is possible that he is one
himself.
cance in the post-modern era of anomie and alie-
nation. Rorty (1980, p. 360) calls such research The normal discourse of our society is similarly
“edifying” research. It is a project of finding new, compelling. Its rationalism and materialism
better, more interesting, more fruitful ways of prioritizes the intellect, and corporeal concerns
speaking. It “may consist in the hermeneutic such as production and consumption, and miti-
activity of making connections between our gates against the living and experience of other
own culture and some exotic culture or histori- human potentials such as the emotional, intui-
cal period, or between our own discipline and tive, imaginative, spiritual and aesthetic.
another discipline which seems to pursue in- Furthermore, it conditions the perceptions that
commensurable aims in an incommensurable social costs, as opposed to market costs, are “val-
vocabulary. But it may consist in the ‘poetic’ ues” rather than “facts”, and talk about such
activity of thinking up such new aims, new issues as alienation, poverty, pollution, un-
words, or new disciplines, followed by, so to employment, warfare, chemical poisoning, and
speak, the inverse of hermeneutics: the attempt the consumption of non-renewable resources, is
to reinterpret our familiar surroundings. . . . seen pejoratively as subjective and emotional,
Edifying research is supposed to be abnormal, to rather than objective and rational. However, by
take us out of ourselves by the power of strange- adding to an accumulating literature in all the
ness, to aid us in becoming new beings.” “disciplines”, including accounting, which is de-
To knowingly speak an abnormal discourse re- mystifying and deligitimizing the myths of “rea-
quires confidence in one’s own personal vision son” and “objectivity”, it is hoped that this paper
and the courage to communicate that vision. facilitates critical, “edifying” and socially “con-
Evans-Pritchard (1937, p. 125) describes how structive” research in accounting.

BIBLIOGRAPHY

Agrawal,
S. P., On the Conceptual Framework of AccountingJournal o/Accountingliterature ( 1987) pp.
165-177.
Agrawal, S. P., Jensen, P. H., Meador, A. L. & Sellers, K, An International Comparison Of CoflCeptttaI
Frameworks in Accounting, Memphis State University, Working Paper ( 1987).
Ansari, S. & Euske, K J., Rational, Rationalizing, and Reifying Uses of Accounting Data in Organizations,
Accounting, Organizations at&Society ( 1987) pp. 549-570.
Bail, R. J. & Foster, G., Corporate Financing Reporting: A Methodological Review of Empirical Research,
_To#rnal ofAccounting Research(Supplement, 1982) pp. 161-234.
Bernstein, R. J., Bqond Objectiuism andPositivism (Oxford: Basil Blackwell, 1983).
THE FASB’S CONCEPTUAL FRAMEWORK 329

Berger, P. L. & Luckmann, T., The Social Constraction ofReality (Peregrine, 197 1).
Boland, R J., Beyond the Objectivist and the Subjectivist: Learning to Read Accounting as Text, Accounting,
Organizations and Society (1989) pp. 591-604.
Boland, R. J. & Pondy, L. R., Accounting in Organizations: A Union of Natural and Rational Perspectives,
Accounting. Organizafions and Society (1983) pp. 223-234.
Booth, P. &Cocks, N., Critical Research Issues in AccountingStandard-Setting JournaLofBusinessFinance
and AccounNng (1989).
Brooker, R. P., An Aspect of the Use of Accounts as Evidence, Abacus (September, 1969) pp. 64-77.
Brown, R H., Reason as Rhetorical: On Relations among Epistemology, Discourse and Practice, in Nelson,
J. S., Megill, A. & McClosley, D. N. (eds), TheRhetoric of the Social Sciences (Wisconsin Press 1987).
Buckner, H. T., Transformations of Reality in the Legal Process, in Luckmann, T. (ed.), Pbenomenofogy
and Sociology (Harmondsworth: Penguin, 1978) pp. 31 l-323.
Burchell, S., Clubb, C., Hopwood, A., Hughes, J. & Nahapiet, J., The Role ofAccounting in Organizations and
Society,Accounting, Organizations andsocz’ely (1980) pp. 5-27.
Burchell, S., Clubb, C. & Hopwood, A. G., Accounting in its Social Context: Towards a History Of Value
Added in the United Kingdom,Accounting, Organizations andsociety (1985) pp. 381-415.
BurrelI, G., No Accounting for Sexuality,Accountin& Organizations andSociety ( 1987) pp. 89-102.
Chalmers, A. F., What is this Thing Called Science? (St Lucia: University of Queensland Press, 1982).
Chua, W. F., Theoretical Constructions of and by the Real,Accountin& OrganizationsamfSociety (1986)
pp. 583-598.
Coombe, B., Auditors Take New Look at Going Concern Qualifications, Australian Financial Review ( 18
December 1984).
Courtis, J. K., Business Goodwill: Conceptual Clarification via Accounting, Legal and Etymological
Perspectives, The Accounhg HistoriansJournal ( 1983) pp. l-29.
Dopuch, N. & Sunder, S., FASB’s Statements on Objectives and Elements of Financial Accounting, The
Accounting Review (January,1980) pp. l-2 1.
Evans-Pritchard, E. E., Witchcraft, Oracles andMagicAmong tbe_$zande (London, 1937).
Feyerabend, P. K., AgainstMethod (Verso, 1978; originally published by New Left Books, 1975).
Financial Accounting Standards Board, Statement of Financial Accounting Concepts No. 1: Objectives of
Financial Reporting by Business Enterprises (FASB, 1978).
Financial Accounting Standards Board (1980), Statement of Financial Accounting Concepts No. 2:
Qualitative Characteristics of Accounting Information (FASB, 1980).
Financial Accounting Standards Board (1980a), Statement of Financial Accounting Concepts No. 3:
Elements of Financial Statements of Business Enterprises (FASB, 1980).
Financial Accounting Standards Board, Statement of Financial Accounting Concepts No. 5: Recognition and
Measurement in Financial Statements of Business Enterprises (FASB, 1984).
Foucault, M., Madness and Civilisatioc A Histoy of Insanity in the Age of Reason, translated by Howard,
R (Tavistock, 1967).
Foucault, M., The Birth of the Clinic An Archaeology ofMedical Peheption, translated by Sheridan, A. M.
(Tavistock, 1973).
Foucault, M., Discipline and Punish: The Birth of the Prison, translated by Sheridan, A. M. (Tavistock,
1977).
Foucault, M., TbeHistoyofSexuaIity AnIntroduction, translated by Hurley, R., Harmondsworth: Penguin,
1981).
Garfinkei, H., Studies in Erhnometbodology (Prentice-Hall, 1967).
Garfinkel, H., Lynch, M. & Livingston, E., The Work of Discovering Science Construed from Materials from
the Optically Discovered Pulsar, Pbilosoprjr of the Social Sciences (Vol. 11, 1981) pp. 13 l-l 58.
Garfinkel, H. & Sacks, H., On Formal Structures of Practical Actions, in McKiMey, J. C., & Teryakian, E. A.
(eds) TheoreticalSociology: Perspectives and Developments (Appleton-Century-Crofts, 1970).
Gasking, D., Mathematics and the World, in Flew, A. (ed.),Logic and Language (New York: Garden City,
1965).
Gerboth, D. J., The Conceptual Framework: Not Definitions, but Professional Vahes,AccountingHorizons
(September 1987) pp. l-8.
Gibbins, M., Propositions about the Psychology of Professional Judgement in Public Accounting, Journal
ofAccountirzgResearcb(Spring, 1984)~~. 103-125.
Giddens, A., New Rules of Sociological Method (London: Hutchinson. 1976).
Giddens, A., The Constitution of Societyt Outline of the Tbeoy of Structuralion(Cambridge: Polity Press,
330 RUTH D. HINES

1984).
Handel, W., Etbnometbodology: How People Make Sense (Prentice-Hall, 1982).
Heisenberg, W., Pbystcs and Philosophy: Tbe Revolution in Modern Science (Harper & Row, 1958).
Hines, R. D. (1988a) Financial Accounting: In Communicating Reality, We Construct Reahty,Accounting
Organizationsand Society ( 1988) pp. 25 l-262.
Hines, R. D., ( 1988b) Popper’s Methodology of Falsificationism and Accounting Research, TheAccounting
Review (October, 1988) pp. 657-662.
Hines, R. D. (1989a), Financial Accounting Knowledge, Conceptual Framework Projects and the Social
Construction of the Accounting Profession, Accounting Auditing andAccountabi&yJournal ( 1989)
pp. 72-92.
Hines, R. D. ( 1989b), The Sociopolitical Paradigm in Financial Accounting Research,Accounting Auditing
andAccountabilityJourna1 ( 1989) pp. 52-76.
Hopper, T., Storey,J. & Willmott, H., Accounting for Accounting: Towards the Development of a Dialectical
View, Accounting, Organizations and Society ( 1987) pp. 437-456.
Hopwood, A. G., The Tale of A Committee that Never Reported: Disagreements on Intertwining Accounting
with the Social,Accounting,Organizations andsociety (1985) pp. 361-377.
Hopwood, A. G., The Archaeology of Accounting Systems,Accounting Organizations andsociety ( 1987)
pp. 207-234.
Hopwood, A. G., Accounting Research and Accounting Practice: The Ambiguous Relationship between
tbe Two, Deloitte, Haskinsand Sells Accounting Lecture at the University College of Wales, Aberystwyth,
Wales ( 1988).
Hopwood, A. G. (1990a), Accounting and Organization Change, Accounting, Auditing and
AccountabilityJournal ( 1990) pp. 7-l 7.
Hopwood, A. G. (1990b), Ambiguity, Knowledge and Territorial Claims: Some Observations on the
Doctrine of Substanceover Form: A Review Essay,Brttisb Accounting Review (March 1990).
Hopwood, A. G. & Loft, A., Time and Accounting Paper presented at the Sixth Annual Conference of the
Association for Social Studies of Time, London (October 1989).
Johnson, L. T., The Conceptual Framework: A Retrospective, The Chartered Accountant in Australia
(September 1985) pp. 23-25.
Jones, R S.,Pbystcs as Metaphor (Wildwood House, 1983).
Joyce, E.J., Libby, R & Sunder, S.,Using the FASB’s Qualitative Characteristics in Accounting Policy Choice,
Journal ofAccountingResearch (Autumn 1982) pp. 654-675.
Knights, D. & Collinson, D., Disciplining the Shoptloor: A Comparison of the Disciplinary Effects of
Managerial Psychology and Financial Accounting, Accounting, Organizations and Society (1987) pp.
457-478.
Kuhn, T. S.,TheStructureofScienttficRevolutio~ 2nd Edn (Chicago: University ofchicago Press, 1970).
Jaudan,L, Progress andItsPtoblems (Routledge and Kegan Paul, 1977).
Laudan,L, A Contirtation of Convergent Realism, Pbitosopby of Science (1981) pp. 19-49.
Iaudan, L, Discussion: Realism without the Real, Philosophy of Science (1984) pp. 156162.
Laughhn, R C., Accounting Systems in Organizational Context.% A Case for Critical Theory, Accountfng
Organizations and Society ( 1987) pp. 479-502.
Lehman, C. & Tinker, T., The “Real” Cultural Significance of Accounts, Accounting Organizations and
Society ( 1987) pp. 503522.
Leiter, K, A Primer in Methodology (Oxford: Oxford University Press, 1980).
Lemert, C. C., Language, Structure, and Measurement Structuralist Semiotics and Sociology, American
Journal of Sociology (1979).
Loft, A., Towards a Critical Understanding of Accounting: The Case of Cost Accounting in the UK 1914-
1925, Accounting, Organizations at&Society (1986) pp. 137-170.
Lugg, A., The Process of Discovery, Philosophy of Science (June 1985) pp. 207-220.
McHugh, P., On the Failure of Positivism, in Douglas, J. D. (ed.),Umferstanding Eoetyaky Life, pp. 320-
335 (Routledge and Kegan Paul, 1971).
Mehan, H. & Wood, H., The Real@ of Ethnometbodology (John Wiley, 1975).
Meyer, J. W., On the Celebration of Rationality: Some Comments on Boland and Pondy, Accounting
Organizations andSociely (1983) pp. 235-240.
Meyer, J. W. & Rowan, J., Institutionalized Organizations: Formal Structure as Myth and Ceremony,
American Journal of Sociology (September, 1977) pp. 340-363.
Miller, M., A Conceptual Framework for Australian Accounting Standards: is It Worth the Effort? The
THE FASB’SCONCEPTUAL FRAMEWORK 331

CharteredAccountant in Australia (August 1985) pp. 48-52.


Miller, P., Accounting for Progress - National Accounting and Planning in France: A Review Essay,
Accounting, Organizations and Society (1986) pp. 83-104.
Miller, P. & O’Leary, T., Accounting and the Construction of the Governable Person, Accounting,
Organizations at&Society ( 1987) pp. 235-266.
Miller, P. B. W. 81Redding, R..The FASB: The People, the Proces$ and the Politics (Homewood, IL: Irwin,
1986).
Molotch, H. L. & Boden, D., Talking Social Structure: Discourse, Domination and the Watergate Hearings,
American Sociological Review ( 1985) pp. 273-288.
Morgan, G., Accounting as Reality Construction: Towards a New Epistemology for Accounting Practice,
Accounting Organizations andsociety (1988) pp. 477-486.
Neimark, M. & Tinker, T., The Social Construction of Management Control Systems, Accounting,
Organizations and Society ( 1986) pp. 369-396.
Peasnell, K V., The Function of a Conceptual Framework for Corporate Financial Reporting, Accounting
and Business Research (Autumn 1982) pp. 243256.
Polanyi, M., Personal Knowledge (New York and Evanston: Harper & Row, 1964).
Pollner, M., Mundane Reasoning, Philosophy of theSocial Sciences ( 1974) pp. 35-54.
Pollner, M., Mundane Reason Reality in Every&y and Sociological Discourse (Cambridge: Cambridge
University Press, 1989).
Richardson, A J.,Accounting as a Legitimating Institution,Accounting, Organizations andSociety( 1987)
pp, 341-356.
Roberts, J., Strategy and Accounting in a UK Conglomerate, Accounting, Organizations and Society
(1990) pp. 107-126.
Rogers, R L & Menton, K, Accounting for Deferred Payment Notes, Tbe Accounting Review (July 1985)
pp. 547-557.
Rorty, R.,Philosophy and the Minor of Nature (Oxford: Basil Blackwell, 1980).
Sartre,J.,Being and Nothingness, translated by Hazel Barnes (New York, 1956).
Schifl?in, D., Meta-talk:Organizational and Evaluative Brackets in Discourse, Sociological Inquiy ( 1980)
pp. 199-236.
Schuster, J. A., Methodologies as Mythic Structures: A Preface to the Future Historiography of Method,
Metascience ( 1984) pp. 15-36.
Schutz, A., Collected Papers I: The Problem of Social Reality (The Hague: Martinus Nijhoff, 1962).
Schutz, A., CollectedPapers II Studies in Social Tbeoy (The Hague: Martinus Nijhoff, 1964).
Sikka, P., Wilbnott, H. & Lowe, T., Guardians of Knowledge and Public Interest: Evidence and Issues of
Accountability in the UK Accounting Profession, Accounting. Auditing and Accountability Journal
( 1989) pp. 47-71.
Silverman, D., The Tbeoy of Organizations (Heinemann, 1970).
Silverman, D., Accounts of Organizations, in M&inlay, J. B. ted.), Processing People: Cases in
Orgunizationul Bebuviour, pp. 269-302 (Holt, Rinehart & Winston, 1975).
Solomons, D., The Politicization of Accounting, The Journal of Accountancy (November 1978) pp. 6572.
Solomons, D., The Political Implications of Accounting and Accounting Standard-Setting,Accounting and
Business Research (Spring 1983) pp. 107-I 18.
Solomon& D., The FASB’sConceptual Framework: An EvaluationJournul ofAccountancy (June 1986) pp.
114-124.
Tinker, T., Panglossian Accounting Theories: the Science of Apologising in Style, Accounting,
Organizations and Society ( 1988) pp. 16%190.
Tinker, T., Merino, B. D. & Neimark, M. D., The Normative Origins of Positive Theories: Ideology and
Accounting Thought,Accounting, Organizations andSociety ( 1982) pp. 167-200.
Will, F. L., Reason, Social Practice and Scientific Realism, Pbilosopby of Science (March 1981) pp. l-18.
Williams, P. F., The Predictive Ability Paradox in Accounting Research, Accounting. Orgunizutions and
Society ( 1982) pp. 4054 lo.
Wtiott, H. C., Organising the Profession: A Theoretical and Historical Examination of the Development of
the Major Accounting Bodies in the UK, Accounting, Organizations and Society (1986) pp. 555-582.
Wittgenstein, L, Philosophical Investigations (Macmillan, 1953).